8-K: Steel Partners Completes Short-Form Merger of Steel Connect, Issues Contingent Value Rights

Steel Partners Holdings L.P. completed a short-form merger of Steel Connect, Inc., making it a wholly-owned subsidiary and issuing contingent value rights to former shareholders.

Summary

• Steel Partners Holdings L.P. completed a short-form merger with Steel Connect, Inc. on January 2, 2025.
• Steel Connect is now an indirect, wholly-owned subsidiary of Steel Partners.
• The merger was funded with approximately $31.2 million from Steel Partners' existing credit agreement.
• Former Steel Connect shareholders, excluding certain affiliated investors, received contingent value rights (CVRs) entitling them to a portion of potential proceeds from the Reith litigation.
• The SP Investors, who held shares before May 1, 2023, or shares from convertible instruments, will not receive proceeds from the Reith litigation.
• The surviving corporation will retain any Reith Net Litigation Proceeds with respect to the 1,552,838 shares of Common Stock acquired by the SP Investors after May 1, 2023.
• Steel Connect's common stock will be delisted from the NASDAQ Capital Market.

Sentiment

Score: 6

Explanation: The document describes a completed merger, which is generally positive for the acquiring company. However, the value for former shareholders is tied to a contingent litigation outcome, creating uncertainty. The delisting of shares is a negative for former shareholders.

Positives

• The merger simplifies the corporate structure by making Steel Connect a wholly-owned subsidiary.
• The CVRs provide former shareholders with a potential upside from the Reith litigation.
• The merger was completed using existing credit facilities, avoiding the need for additional capital raising.

Negatives

• Steel Connect's common stock will be delisted from the NASDAQ Capital Market, reducing liquidity for former shareholders.
• The SP Investors will not receive any portion of the Reith Net Litigation Proceeds with respect to shares held before May 1, 2023, or shares from convertible instruments.
• The value of the CVRs is contingent on the outcome of the Reith litigation, which is uncertain.

Risks

• The value of the CVRs is entirely dependent on the outcome of the Reith litigation, which is not guaranteed.
• The amount of the Reith Net Litigation Proceeds is subject to deductions for expenses.
• There is no guarantee that the Reith litigation will result in any payment to CVR holders.
• The CVRs are non-transferable except under specific circumstances.

Future Outlook

The company will focus on integrating Steel Connect as a wholly-owned subsidiary and managing the Reith litigation to maximize potential value for CVR holders.

Industry Context

This merger is part of a broader trend of companies streamlining their operations and consolidating ownership. The use of CVRs is a mechanism to provide some value to former shareholders in situations where the full value of an asset is uncertain.

Comparison to Industry Standards

• The use of a short-form merger is a common practice when a parent company owns a significant portion of a subsidiary's shares, similar to acquisitions by companies like Berkshire Hathaway of their subsidiaries.
• The issuance of CVRs is a relatively common practice in mergers and acquisitions, particularly when there are contingent assets or liabilities, similar to CVRs issued in the acquisition of Genzyme by Sanofi.
• The delisting of shares after a merger is standard practice, similar to the delisting of companies acquired by private equity firms.

Legal Proceedings

• The document references the Reith litigation, which is a class and derivative action against former directors of Steel Connect and Steel Partners.
• The CVRs are tied to the potential proceeds from the Reith litigation.

Related Party Transactions

• The merger is a related-party transaction as Steel Partners acquired Steel Connect, where Steel Partners already had a significant ownership stake.

Stakeholder Impact

• Former Steel Connect shareholders receive CVRs, providing a potential upside from the Reith litigation.
• Steel Partners shareholders benefit from the simplification of the corporate structure.
• Steel Connect employees will now be part of a wholly-owned subsidiary of Steel Partners.

Next Steps

• Steel Connect will be integrated as a wholly-owned subsidiary of Steel Partners.
• Steel Connect's common stock will be delisted from the NASDAQ Capital Market.
• The Reith litigation will continue, and any proceeds will be distributed to CVR holders if and when received.

Key Dates

Keywords

merger, contingent value rights, CVR, Steel Partners, Steel Connect, delisting, Reith litigation, acquisition